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Moody's: U.S. Rating Outlook Remains Stable

September 17, 2014 10:38 AM EDT

Numerous credit strengths keep the US government's credit rating positioned at top-tiered Aaa, despite deterioration in its debt position since the financial crisis, says Moody's Investors Service in its annual report. The most likely source of credit pressure, which is growth in the deficit from projected increases in social spending, is a long-term issue unlikely to pose a risk to the Aaa rating for several years. The outlook on the Aaa rating is stable.

Supporting the Aaa rating are the very large and diverse economy, a strong record of GDP and productivity growth, and the status of the dollar and the Treasury bond as global reserve currencyassets, allowing the US government to carry a higher level of debt relative to other countries, says Moody's.

With budget deficits declining steeply in recent years, debt ratios are stabilizing and should remain at or near current levels over the remainder of the decade. The outlooks for near-term economic and fiscal performance are also favorable. Toward the end of the decade, the costs of social programs become a greater credit concern. These are projected to rise, increasing federal spending and adding to debt ratios.

"Adjustments to major social programs such as social security and health care spending may eventually become necessary to avoid pressure on US creditworthiness," says Steven Hess, a Senior Vice President at Moody's.

Moody's says it makes little difference to credit quality whether these adjustments are made on the expenditure side or on the revenue side.

Although debt levels in relation to GDP are likely to remain close to flat, they are also relatively high. After doubling from 35.1% of GDP in 2007 to 72.0% in 2013, the ratio of federal government debt to GDP is projected to peak at the end of 2014 at 74.4% and to stabilize at just below that level for the remainder of the decade.

"These high levels give the US government less flexibility to respond should it face another financial shock," says Hess.

Moody's credit analysis on the United States government is an annual report and does not constitute a rating action. For more information, Moody's research subscribers can access the credit analysis at

https://www.moodys.com/research/United-States-of-America-Government-of-Analysis--PBC_175290.



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